The latest Ben Stein column on Yahoo! Finance drives home a point that isn’t often mentioned in such turbulent times – when the markets are down, it’s the time to buy. The first few days of 2008 were horrific. The losses equaled half the gains of all of 2007, a pretty compelling statement. Add to that the idea that the first five trading days of the year often signal what will happen the remainder of the year and you have yourself a recipe for disaster for 2008. However, in these turbulent times, Ben Stein offers only these words of advice: “The history of stock market investing is unequivocal on this point: When the market is low, when the economy is in a recession, it is — in the long run — by far the best time to buy.”

I’m 27, I’ve seen the burst of the dot-coms in 2001 and the recovery since. Ben Stein was born on November 25, 1944 so he’s seen his fair share of fluctuations in the economy and if he says long term investors should be looking to buy, then I think I should be buying! Here’s what he suggests: diversified domestic funds like FSTVX (or Vanguard’s Total Market fund) and emerging markets (EEM, ADRE)

Why buy? Why not sit on the sidelines? While it’s great to try to time the bottom, you’re never going to be able to do it. The bottom will come and 1) you’ll miss it; 2) hesitate, thinking the uptrend in temporary; 3) not save entirely! So in this case, investing with a dollar cost averaging strategy probably isn’t a bad idea. I think market timing works sometimes, but it doesn’t work enough to make it a good strategy in the long run.

What do you think? Should we heed Ben Stein’s advice and start buying the post-Christmas sales in the stock market? Or should we take a breather and sit on the sidelines until we retreat back from $100 oil and start seeing a recovery in plunging housing market?

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19 Responses to “Ben Stein: Concerned About A Recession? Time To Buy!”

Mixed. I will be doing what I always planned to do with my IRA: contributing the full amount (or as much as I can) as early in the year as I can. 401(k) contributions will be made throughout the year with paychecks. For the taxable brokerage account, I will be taking my sweet time to look for deals. But I don’t pretend that I (or anyone) can time the market, so I’m ready to buy now.

44 years until retirement will work to my favor. Well, 67 is when the IRS says I should retire; I’m going to see if I can swing a little earlier. I’m definitely glad that the market downturn comes now, rather than a few years into my investing career.

I agree entirely with Stein on this point. I saw the market decline on January 2nd and responded by setting up an auto-transfer of $2,500/month to my diversified investment portfolio.

If you’re looking at a 20-year horizon before you plan to start withdrawing your funds and you have the means to keep making scheduled investments you should actually be happy when the market goes down . . . not up. You can start worrying about those up numbers in 15 years or so.

I think the more negative sentiment is out there the more I’m wanting to buy, particularly in sectors like healthcare cost containment, infrastructure, energy, etc. These “defensive” stocks will be big winners this year until financials get things turned around and recover from the housing fallout.

Agreed that for long-term investing, now is always the best time to buy. However, you can amplify gains by shifting your money around the sectors that do better weathering a recession, and then the sectors that do good coming out of recessions.

I think it’s good advice, but I can’t help but notice that the FSTVX that he recommends has a $100k minimum. Of course there are other almost-as-cheap total market funds, but it would be nice for Ben to come down to earth a bit along with us mere mortals.

I just bumped up my 401(k) contribution rate by 2.0% (bringing it to 13.0% total) … I don’t have enough money on hand to fund my Roth IRA in one swoop, so I may do the DCA on it all through the year …

On another note: is it wise to re-allocate 401(k) funds to be 50.0% US stocks and 50.0% International? Many experts are suggesting that … I currently have it at 73.0% US Stocks and 27.0% International.

i fully funded my roth for 2008 already and bought $5000 worth of stocks/funds today. bought a worldwide strategy fund, utilities fund, agriculture, JNJ, DD, and MO. gold should do well again this year. and i dont think $100 oil is going away anytime soon. the days of sub $80 oil are gone, get used to it.

if youre long, start buying and continue to buy through 2008. theyre will be some good deals if you hold…

I’ve been buying lots throughout oct-dec. i’m negative on most, but i’m not phased by it. echoing what others have said in investing in good companies for the long run. we are balancing increasing cash holdings, not because of the market turmoil, but because we will need it in a short 4 month period; otherwise, I would be putting more into the market. so instead of putting 85% of pay into the market, we have had to drop it to 60% of our pay. i’m not happy about it, because i really see lots of steals to be had right now; however, with dropping to one income and the both my wife and I moving to two separate countries for work, requires extra cash holdings to fund. so, like someone else stated, if you have the extra cash, then i’m all for buying more stocks/funds.

I had a short gig working for a University in New York. They stuck money in TIAA-CREF. Ignorant at the time, I added nothing. In four years they put in $7000.00. That’s the total contribution. That job ended in ’76. That 7K is now sitting at 170K after 30 years. This is after all the crashes and reversals and meddling by trying to time the market. I left it alone. The danger is going the way of “if only I had” kinds of thoughts. Of course you can invent ways to torture yourself.

Regardless, the lesson is clear to me. Putting money in the DOW and not meddling with it except to put in money on a monthly basis and putting enough in that it makes you wince just a little every month will (most likely) let you retire very comfortably. There are other exchanges that do well so there are lots of choices however the regular 401K type investment in performing low cost mutual funds is the key. I know this sounds familiar but it is true.
Bill

Ben’s real point is always this: Work to your own plan and ignore the “market” because your friend is the economy.. That is, don’t get panicky or time markets or over-spend or act in any way short term. Invest for retirement, which is long term. Market up? Market down? Whatever. Save your money for when you need it.

if you’re investing with a regular 401(k) plan or automatic investment plan, then just keep plugging away. If you’re buying individual stocks or funds on your own, then be cautious for now and nibble on good quality stocks here and there. as they start to turn around, then buy more shares with confidence.

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